Economy at stake as political turmoil grips Maldives

By JJ Robinson | Thursday, March 1, 2012 - 03:07

The tourism industry stands to lose as much as US$100 million in the next six months, the Maldives Association of Tourism Industry (MATI) has warned, due to widespread media coverage of the country’s political unrest.

“Potential visitors are questioning the safety and security in the island nation as the political turmoil in Maldives makes headlines in a large number of international media,” claimed MATI in a recent statement, adding that resorts had registered 500 cancellations in the first week following the change of government. “Various allegations such as the installation of an Islamic regime, possible enactment of full Sharia law and Anti Semitic remarks made by politicians at public gatherings have also caught the attention of the international press,” MATI stated.

With no election date in sight, the economic consequences of the ongoing political turmoil in the Maldives are likely to be far reaching. The ongoing climate of uncertainty – anathema to business, foreign investment and especially tourism – is likely to persist while the ousted Maldivian Democratic Party (MDP) continues to challenge the legitimacy of the new government, which in turn has resisted setting a date for early elections despite pressure from a growing number of international bodies.

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The Maldives’ resort industry is so insulated from the rest of the country that few arriving tourists are likely to be even aware of the unfolding political crisis – let alone be impacted by it. Arriving guests are collected at the airport and whisked off by resort representatives the moment they step through the departure gate – Male’ is nothing more than an interesting piece of scenery as the seaplane lifts off.

“That message is not going out,” says newly appointed Tourism Minister Ahmed Adheeb. “People don’t know that the resorts are separate [from the rest of the Maldives], and international headlines have made people panic.”

The need for an economy is one of the only subjects the major parties agree on – and the US$3 billion tourism industry is by far the biggest earner, and indirectly responsible for over 70 percent of the economy.

“Tourism is so much connected to the economy. We cannot afford to involve politics in the industry,” Adheeb says.

MATI’s Secretary General, Sim Mohamed Ibrahim, agrees: “The travelling public don’t always know that it is one resort, one island, and that the resorts are cushioned from the unrest. This has mostly taken place in in Male’ and Addu. The resorts are far removed from the unrest.”

That policy of segregation is now being tested after weeks of turbulent headlines in international media, focusing not only on the political crisis and police crackdowns, but other issues such as the contrast between the Western hedonism of the resorts and rising religious fundamentalism in other parts of the country.

“The main problem is that the media is now portraying the Maldives as a hardcore Islamic country, which is putting people off,” reported Tourism Review.

MATI’s concerns appeared echoed in the new government’s aggressive response to negative media coverage on Friday, during a strident speech by the formerly demure President Dr Mohamed Waheed Hassan.

“We are not afraid to die as martyrs. We are not afraid of the enemies we face,” Dr Waheed told the crowd of over five thousand, while sharing the stage with several of the country’s wealthiest resort tycoons. “We must be sad that the enemies and traitors of the Maldives are spreading lies in various places of the world to tarnish the country’s image. They are the real conspirators. Those who defame the Maldives to destroy its industries and tourism are enemies of this country,” he said.

The true impact of recent events on tourism is hard to gauge, amid the industry’s efforts to play down negative media coverage and preserve the country’s reputation as a safe, peaceful and relaxing travel destination for well-heeled visitors.

“There have been some reported cancellations, although no data is available yet,” a senior tourism official told Minivan News.

“A lot of resorts are very concerned and are asking what’s around the corner. We’ve no answer to that yet.”

Adheeb said the Tourism Ministry was presently “crunching the numbers”.

Reports at the height of the crisis in early February suggested that tourists hardly put down their cocktails: “We are having a great time. We heard about the coup, but it doesn’t matter to us,” a professor of American literature told Reuters, between sips – “And even if there is trouble, the airport is on another island, so no trouble.”

The situation was not considered so severe that people were cancelling their holidays, the tourism official told Minivan News, but a lot of resort owners were expressing concern about forward bookings, he said.

Furthermore, while the guests might be unconcerned about the Maldivian political situation, many of the Maldivian staff serving them certainly were.

“The beauty of the Maldivian tourism product is that resorts are safe even if there are local problems,” the official told Minivan News. “But 50,000 Maldivians work in the industry, and they are largely from the Maldivian Democratic Party (MDP).

Morale of the staff may be affected – staff are talking and unsettled, and they will pass that onto guests. Tourism is a contact sport and many visitors will build a rapport with their waiter or butler, and it will spill out.”

One resort manager expressed concern that the combination of staff morale and isolation was a “powder keg” for strike action.

Lack of information and fears for the safety of family members appears to be another factor – visiting a resort on Baa Atoll recently, Minivan News was approached by staff members concerned for family members in Addu Atoll, following the police crackdown after the destruction of their buildings on February 8.

‘Travel Advisory’

A travel advisory issued by Salisbury-based NGO Friends of Maldives (FOM), urging visitors to avoid Bandos and all Villa properties (Sun, Paradise, Royal and Holiday Islands), has received a mixed reaction.

“These are places linked to individuals or groups who we suspect to be involved in the subversion of democracy and in human rights abuses in the Maldives,” FOM said in its accompanying statement, but emphasised that it was not a blanket boycott of the Maldives.

“We appreciate the Maldives economy relies hugely on the tourism economy, and so we aren’t asking for tourists to avoid the Maldives – rather we are asking them to make an informed and ethical decision to choose out of around a hundred resorts that aren’t associated with the the coup d’état and the human rights abuses that occurred following the event,” said FOM’s founder, David Hardingham.

“MATI believes that any action detrimental to the tourism industry of the Maldives will have serious implications for the country’s economy. We believe that those who refer to themselves as friends of the Maldivian people must realise that such damaging measures taken against the tourism industry result in harming public welfare and those most vulnerable in society.”

The travel advisory was “very hurtful”, added Adheeb.

“Something like this can really affect the whole industry and bring a lot of sorrow,” the tourism minister said. “A lot of Maldivians work in these resorts. We say to FOM that it’s too early to judge – there are a lot of negative things happening in our country, so let things unfold first. We request that they not play with our industry.”

The senior tourism official also expressed concern about the potential impact of the advisory on resort staff – many of whom were MDP. He also warned against rhetoric suggesting that resort owners were responsible “for the coup” – a theme begun by Nasheed after his ousting, and picked up by several international publications.

“This cannot blamed on resort owners,” he said. “That a few businessmen who own resorts toppled the government does not means that all resorts are ‘pro-coup’ – many actually supported Nasheed, and he still has a lot of support there.”

The official also questioned whether an ‘appeal-to-conscience’ would really affect tourists’ decision to come to the Maldives, regardless of whether it was a democracy or dictatorship.

“Most people don’t really make travel decisions based on ethical or moral concerns. It’s a small percentage of the market,” he said.

Sim agreed – “People do not travel to the Maldives based on questions of morality” – but said the impact remained to be seen.

“People do not travel to destinations that are in any way not peaceful, or are experiencing civil unrest,” he said.

The Maldives tourism industry began in the 70s and grew in a peaceful environment under the autocratic stability of former President Maumoon Abdul Gayoom.

Now, however, unhappy supporters of Nasheed have been bolstered by the growing ranks of the democratically disenfranchised, who seem in no hurry to relax their demands for early elections.

The uncertainty in such a climate of political statement can hardly be good for business – and the signs are beginning to show.

Investor confidence

On February 17, just over a week after the change of government, India’s Economic Times reported that the State Bank of India (SBI) had issued a moratorium on fresh loans in the Maldives until June.

SBI held a quarter of all deposits in the Maldives and had issued 42 percent of all loans, according to the Times.

“In 2009, SBI bailed out Maldives from a severe foreign exchange crisis when it subscribed to US$100million dollar-denominated treasury bonds issued by the Maldivian Monetary Authority (MMA),” the paper added, citing an Indian government official.

Given SBI’s contribution to the tourism industry in the Maldives, “that is something we are very concerned about,” Adheeb acknowledged.

“I would like to give confidence to investors that we will make sure we are stable and consultative, and will not bring politics into tourism,” he added.

Sim pointed out that if SBI had taken such a stance, “it is likely that other people will also view it this way. Stability in the country is most important to investors,” he said.

“SBI has also previously said they have a problem with the judiciary, and that this has contributed to a [lack of] investor confidence.”

Concerns about the impartiality of the justice system and its resistance to reform eventually led Nasheed’s government to detain Chief Judge of the Criminal Court, Abdulla Mohamed, and call for the UN and Commonwealth to help resolve the crisis. Two weeks later, opposition supporters and rogue elements of the police and military toppled Nasheed’s government, prompting his resignation.

“This is a problem for potential investors. If you invest and something goes wrong, all roads lead to a Maldivian court – and who’d want that?” the tourism official asked Minivan News.

In the immediate aftermath of what Nasheed’s supporters contend was a coup d’état, “a lot of contracts that are half completed have been stopped, and those by the previous government politicised and halted. We’ve become a nightmare client by not following through on agreements,” the official told Minivan News.

“Anyone who has not been paid for goods delivered is in a bad situation right now – it’s not good for our reputation,” he said.

Wider economic impact

The tourism industry is not only culturally insulated from the rest of the Maldives, but also economically.

Most resorts charge in dollars – a practice that technically contravenes monetary authority regulations but is widely overlooked – and bank overseas in more financially and politically-stable economies, such as Singapore.

Beyond import duties, credit card fees and assorted taxes, very little foreign currency trickles into the country, given the size of the tourism industry. Which, with the introduction of the 3.5 percent tourism GST last year, was found to be two to three times larger than previous estimates.

At the same time, with little to no demand for the local currency at even a transactional level, the rest of country suffers from an enduring dollar shortage.

Furthermore, 50 percent of tourism industry employees are expatriate and remit their income, while local staff are typically paid in Maldivian rufiya – tips and service charge aside.

The result is a troubled economy that remains dependent on foreign aid, despite having a per-capita income high enough to in 2011 see the Maldives become one of only three countries to ever graduate from the UN’s definition of a Least Developed Country (LDC), to ‘Middle Income’.

That progression limits the country’s access to concessional credit, removes certain trade concessions, and some donor aid – as well creating a perception in the donor community that the Maldives is ‘less deserving’ than countries still on the LDC list.

Swedish Ambassador accredited to the Maldives, Lars-Olof Lindgren, said as much in May 2011. Sweden, he said, “has very strict of GDP per-capita criteria and has decided to focus its aid elsewhere on least developed countries, particularly in Africa.”

“At the same time, certainly I think we have to look at other aspects of the Maldives – the fact the country taking first steps as a democratic country, steps towards getting the party system to work – that is one reason why the international community should support this – support not only government, but the whole society,” he told Minivan News last year.

Climate aid to a great extent filled the void, with countries ranging from Denmark to the US lining up to commit to infrastructure projects – harbours, water treatment plants, waste management centres – under the banner of climate adaptation and mitigation.

Much of that was prompted by Nasheed’s high profile on the world stage as an environmental campaigner, with wealthy countries happy to share the limelight and demonstrate eco-credentials to their own, increasingly climate-conscious public.

That environmental focus also “absolutely changed how the destination was marketed”, the tourism official told Minivan News.

“Nasheed was synonymous with that, and the photo of the underwater cabinet meeting is one of the most famous in the Maldives. It was a brilliant gimmick that summed up the challenges,” he said.

Now, several foreign diplomats from current donors have privately expressed concern that with the political instability, Commonwealth jitters and the contentious legitimacy of the new government, such funding will be a harder sell to the public and aid agencies in their home countries: “We will fulfil our existing commitments,” one promised.

The Chinese bellwether

The weathervane on the Maldivian tourism economy is likely to be the Chinese market. With belts tightening in the Maldives’ traditional lucrative markets in Europe – particularly Italy and the UK – surging interest in the Maldives tourism product from China has cushioned the industry in the wake of the 2008 financial economic crisis.

In the first seven months of 2011, Chinese visitors accounted for 19.9 percent of the total arrivals. By the end of the year the figure had increased to 23 percent – figures backed by Beijing’s stamp of approval that the Maldives was an acceptable destination for Chinese tour operators to send customers by the thousand.

“We don’t deal with numbers like that from any other country,” the tourism official told Minivan News.

“Chinese guests tend to respect authority – and currently the Chinese government is saying that the situation is OK. As soon as the Chinese authorities say they are concerned, 23 percent of the market will disappear. We can regard the Chinese as either directly in or out,” he said.

Adheeb observed that the Chinese market was “sensitive to international headlines”. There had been a dip in Chinese arrivals, he noted, but this could be attributed to the aftermath of Chinese New Year.

Sim said the Chinese market was “particularly vulnerable, as they make decisions based on information they are given. It has been Chinese New Year so the dropoff in numbers is hard to separate from those put off by the political unrest,” he said.

Most Chinese arrivals come through package tour operators, who are extremely sensitive to travel warnings.

The Chinese government currently has no warning for the Maldives, however neighbouring Hong Kong on February 8 placed the country on an “amber alert”, alongside Pakistan, Russia and Iran.

The language barrier can complicate efforts to reassure the market, particularly on the Chinese side.

One Shanghai-based travel agent, Sun Yi, told Minivan News she was faced with many cancellations just two days after the events of February 7.

”It has seriously affected our business. Many guests cancelled the Maldivian holiday package which used to be very popular,” she explained, adding that her company had suspended plans to hold a commerical event at a Maldives resort this spring.

“Quite a lot of Chinese customers are very concerned of this situation. Some of them are hesitant to make reservations now,” said Emy Zheng, a Chinese national working at Villuxa Holidays.

Recent reports in Chinese media have been reassuring: one honeymooner, Zhou Xiaoyi, told China Daily that he had considered cancelling his trip, but had only been offered a 2.5 percent refund on his prepaid ticket.

“The travel agency said most of our prepayment had been spent on reservations on flights and hotels,” Xiaoyi told China Daily. “So we decided to come anyway and found that our honeymoon was little influenced. We also saw other Chinese people here.”

Much of the tourism industry in the Maldives maintains a wary distance from Maldivian politics, but ongoing political turbulence, protests, confrontational rhetoric, dark mutterings from the staff quarters and ultimately an economic threat such as a loan crisis or plunge in Chinese interest could haul the problem into the industry’s backyard.

With 70 percent of the economy at stake, were that to happen the matter of the government’s legitimacy and the colour of the flag in the President’s office would fast become the least of the country’s worries.